“Standard” deductions in the ATO’s sights this July, as SME owners urged to substantiate claims no matter how small

Businesses and individuals have been warned by the tax office’s assistant commissioner Kath Anderson against claiming “standard” deductions come July 1, with experts saying justification is necessary no matter how small the deduction.

In an interview with Fairfax, Anderson said the Australian Taxation Office (ATO) is gearing up to contact over 1 million Australians about their tax reports in 2018, with the office’s “biggest ever” deductions awareness campaign kicking off over the past few weeks.

That would be nearly 250,000 more Australians contacted compared to the past financial year, reports Fairfax, with the majority of incorrect claims centred on rental and work-related expenses. Anderson says the key for most claims is proving and showing the ATO how the money was spent, and how it relates to your work.

“People think that they have an entitlement even though they have not spent the money. You have to have still spent the money. It has to be related to earning your income, and you have to be able to show us how you calculated the claim,” she said.

Earlier this month, the tax office revealed newer areas of the economy, including cryptocurrency and gig economy earnings, would be in its crosshairs this end of financial year, along with some of its classic pain points such as work-related expenses like car use and uniform purchasing.

But while the ATO’s messaging around these issues is usually pushing for more accuracy from business owners and individuals, Anderson’s reminder should also be a wake-up call for SME owners who might think they’re entitled to various deductions.

Tax agent at Perigee Advisers Lisa Greig tells SmartCompany there are many common misconceptions around ‘standard’ deductions, often issued anecdotally “around the barbeque or at the footy”. Much like Anderson, Greig says when it comes to making any deduction, it’s all about substantiation.

“People who talk about ‘standard’ deductions, they’re probably talking about the magic $300 amount that you can claim without needing any receipts for it. But you still need to justify the claims,” she says.

“If you’re working in a place where you don’t need stationery, or it’s completely provided, you can’t claim $300 worth of stationery from Officeworks.”

It’s the same with expenses claims when it comes to cars, she says, with the ATO allowing individuals and businesses to claim a maximum of 5,000 kilometres per car for business travel expenses. Though the ATO states on its website that individuals do not need to show evidence of kilometres travelled, this doesn’t mean business owners can just claim the 5,000 and be done with it, says Greig.

By and large, it’s a case of people “doing it because they can’t be stuffed”, she says. But even using a tool like Google Maps to keep a rudimentary logbook of kilometres travelled will go a long way when the ATO comes knocking, she says.

Don’t be scared to make deductions

Speaking to Fairfax, Anderson also outlined some of the common “big mistakes” people make when it comes to claiming perceived ‘standard’ deductions for work expenses.

This includes claiming their entire phone bill even when only a portion is work-related; claiming gas and electricity bills for working from home even when they might be sitting on the couch watching TV and using a computer; and claiming the maximum $150 for laundry costs even if they do not have a work-specific uniform.

The ATO has strongly reinforced its compliance powers through its data-matching systems, and Greig says as result, it’s now harder than ever to flatly claim deductions and assume they won’t be followed up on.

For business owners, she says while you shouldn’t be scared to claim the deductions you deserve, “make sure that it’s justified work” and has a “direct reference” to you earning your assessable income. She advises to take the time to correctly report and outline your deductions for each work-related expense, rather than just automatically claiming the maximum.

“If the ATO comes knocking, if you can shoot them an email within a day explaining your deduction, they’ll go away. If you take the full 28 days to do that, they’re definitely going to sniff further,” she says.

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